After Toy Factory Closure, Blame Game Begins

Hong Kong-listed toymaking company Smart Union was forced to close its massive factory in Dongguan, Guangdong province down last week, laying off 7,000 workers in the process. The BBC reports:

A Chinese toymaker which supplied firms including US giant Mattel has gone out of business with the loss of up to 7,000 jobs.

Rising raw material and labour costs and slowing US demand forced Smart Union to close its doors this week.

Workers have since been protesting outside the firm’s factories and a government building in Guangdong province to demand their unpaid wages.

See this video from BBC World News for more about worker unrest surrounding the shut down of toy factories in China.

Laid-off Smart Union assembly line workers have greeted the plant’s closure with rage directed not only at the toymaker’s management, but also at the credit crisis still gripping Wall Street. From AP:

“This financial crisis in America is going to kill us. It’s already taking food out of our mouths,” the 42-year-old laborer [Wang Wenming] said Friday as he stood outside the shuttered Smart Union Group (Holdings) Ltd. factory in the southern city of Dongguan.

[…]Economic upheaval in the U.S. is already changing and shrinking China‘s vast manufacturing hub in the southern province of Guangdong, long regarded as the world’s factory floor.

[…]Already, China’s toy industry is hurting. The official Xinhua News Agency reported this week that 3,631 toy exporters — 52.7 percent of the industry’s enterprises — went out of business in 2008. The causes: higher production costs, wage increases for workers and the rising value of the yuan, the report said.

However, in a China Daily editorial, You Nuo’s opinion is that poor or corrupt management is to blame for Smart Union’s collapse and others like it, not the evaporation of global demand. He points out that thousands of toymakers had gone out of business well before the eruption of the U.S. financial crisis:

But wait a minute. These reports also reflect something like a trend, the closures of toy factories, and that the trend had started long before the Wall Street started to panic. How much those factory closures were really linked with things in the U.S., contrary to what is generally reported or believed, is actually quite vague, and not readily supported by the data from across the Pacific.

As information leaked out of Dongguan reveals, especially from the suppliers to the Hong Kong toy-makers, there had been signs of their failing business for quite some time. They reported about continuous internal strifes that affected business policies and shop-floor management. If that is the case, it should not be attributed only to the U.S. crisis. It would be a case of management failure, perhaps one in which some company leaders stole the revenue that should have been shared by workers, shareholders, and suppliers.

You concludes by calling for an investigation into any possible embezzlement by the management of the failed toy companies:

If it is found that some did steal company profit from the Chinese mainland for investing in new companies elsewhere, to seek cheaper labor and lower taxes, they should be brought to trial.

Kenneth Tan at the Shanghaiist has his own reading of You’s editorial, particularly in regards to that last paragraph :

Expect heads to be brought to the chopping board soon. The Dongguan government is now coughing RMB24 million out of its own pocket to quell simmering unrest by paying the 7,000 laid off workers their wages, and we all know there is no such thing as a free lunch.